Highly dispersed palladium nanoparticles (Pd NPs) encapsulated in the mesoporous cages of the metal–organic framework (MOF) MIL-101(Cr) have been prepared by using the wetness impregnation method. The Pd NPs were characterized by powder X-ray diffraction (PXRD), N2 adsorption, transmission electron microscopy, inductively coupled plasma atomic emission spectroscopy (ICP-AES), and X-ray photoelectron spectroscopy (XPS). The particles size ((2.6±0.5) nm) of the obtained Pd NPs was in good agreement with the cage diameters (2.9 and 3.4 nm) of the MOF. The resulting Pd/MIL-101(Cr) catalyst exhibited extremely high catalytic activities in the direct C2 arylation of substituted indoles by using only 0.1 mol % of the Pd catalyst. Moreover, the catalyst is easily recoverable and can be reused several times without leaching into solution and loss of activity. The combination of the highly dispersible Pd NPs within the accessible mesoporous cages and the favorable adsorption of the aryl halides on MIL-101 are suspected to be the main reasons for the observed high activities of the Pd/MIL-101(Cr) catalyst in the direct C2 arylation of indoles.